Half Yearly Report

Embargoed until 7am 26 September 2011

RedHot Media International Limited

("RedHot" or "the Group")

Half Yearly Financial Results

Six Months Ended 30 June 2011

RedHot (AIM: RHM), a leading media, advertising and marketing business with distribution channels in both Malaysia and China, is pleased to announce its unaudited half yearly results for the six months ended 30 June 2011.

HIGHLIGHTS:

·; Revenue increased by 68% to RM27.7 million (2010 H1: RM16.4 million)

·; Gross profit reduced 3% to RM8.7 million (2010 H1: RM9.0 million)

·; Gross margin normalised to 31.3% (2010 H1: 55%) as the Group refocused on increasing revenue and revised its media broking business model

·; Profit before tax remained broadly stable at RM4.7 million (2010 H1: RM4.9 million)

·; Basic earnings per share decreased by 2.8% to 12.87 sen per share (2010 H1 : 13.36 sen per share)

·; Cash balances available for use at 30 June 2011 stood at RM1.3 million (2010 H1: RM1.5 million)

·; Net assets increased by 32% to RM43.2 million (2010 H1: RM32.8 million)

Commenting on the financial results for the first half of the year, the Group's Chairman, Datuk Oh Chong Peng stated:

The Group's key focus in 2011 is to increase its presence in a very open and fast moving market. This has so far proved successful as we have delivered a significant increase in revenue growth of 68% compared to H1 2010.

While our strategy in 2009 and 2010 was one to increase profit margins through vigilant selection of media offerings for our clients in order to counter the prolonged effects of the global economic downturn, the deliberate shift in 2011 to focus on revenue growth has proven highly effective, however, this has lead to the Group's profit margins returning to pre 2009 levels.

Importantly the focus on increasing revenue has led to three significant developments: We have seen a rise in advertising budgets from existing clients, we have gained new blue chip clients with internationally renowned brands, and we have witnessed an increased take up of advertising space from conventional media owners.

The integration of our resources in Malaysia and China since 2010 has enhanced the service offering to our clients with cross-border media and advertising service offerings between Malaysia and China provides the Group with extra leverage in maintaining its bullish performance for the year 2011.

The Group's transaction with PUC Founder MSC Berhad ("Founder"), continues to progress, albeit at slower pace than initially anticipated, due to the underestimation of the due diligence timeframe resulting from the size of both the Group's and Founder's regional operations and subsidiaries in Malaysia and China. We remain positive that Founder will bring many attributes to the enlarged Group; including, additional media network penetration, business affiliations within China, new advertising income, a move into new sectors such as IT manufacturing and services, as well as access to funding within the Asian markets should we require it.

The Group continues to identify relevant and growth enhancing acquisitions; this being a salient aspect of the Group's expansion strategy. The Directors are currently in early stage discussions which may lead to new business avenues in media platforms such as out-of-home advertising (such as billboards) and interactive advertising areas in the social media sector. Further announcements will be made should these discussions progress.

Operational Review

The Group has acquired a number of key new blue chip accounts during the six month period, and has been granted increased advertising budgets from a number of existing clients. We are now working with customers from both the domestic and international markets and a number of companies within the financial services, white goods, beauty and educational sectors.

Outlook

One of the key developments the Group hopes to realise in the next 12 months is to evolve from being a media broker to a media owner which, by removing the middle man, the Board believe, will provide higher margins and therefore enhance profitability. The Board believe that in the next financial year RedHot will begin to see the benefits of the ongoing investment and subsequent additional costs incurred by the Group to achieve this goal.

Conclusion

Given the seasonal nature of the media and advertising industry, we believe the Group is positioned to realise more opportunities in the second half of 2011 allowing us to surpass our 2010 performance and remain in line with market expectations.

The Group is reliant on continued growth in advertising spend in Malaysia and China which RedHot is naturally exposed to in any economic downturn. This is mitigated partly by the Group's activities in production of its own media content and its sales advisory business.

Notes to editors:

Exchange rate: £1 = RM4.87 (as at 30 June 2011)

RedHot Media International Limited (AIM: RHM), is a Cayman Islands incorporated holding company. Its primary activity is that of a media broking group, including an innovative barter sales trading activity, in Malaysia and the major cities of the People's Republic of China ("PRC"), namely Shanghai, Beijing and Guangzhou.

A media broker conventionally purchases advertising space on behalf of its clients and earns commissions from the media providers based on the amount of advertising purchased. The AxChange business model adopts a pull marketing approach by aggregating demand from advertisers and consumers/merchants to generate additional sales for both the media owners and advertisers respectively.

RedHot also acts, to a lesser extent, as a non-stockholding distributor for certain clients (for whom it also acts as a media broker) with the intention of generating higher margins for the Group than would be obtained in conventional media buying.

Using this distribution based business model (AxChange), which the Directors aim to grow, RedHot enters into a contract to draw down various lines of inventory and then, as the inventory is sold through RedHot's distribution network, the proceeds from the sales are used to purchase media space for the same client.

The AxChange business model has been designed to free up working capital; allowing RedHot's customers to pay for advertising and assist new entrants into Malaysia & China (where capital controls are still in place) in selling their products using RedHot's established distribution network. RedHot also believes the model provides benefits to its distributors; providing them with lower unit prices and access to credit facilities to which they otherwise would not have access.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2011

The results shown above relate entirely to continuing operations.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS AT 30 JUNE 2011

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2011

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2011

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2011

The group's other reserves comprise the following:

Notes to the unaudited results for the six months to 30 June 2011

1. General information

RedHot Media International Limited is quoted on the AIM Market of the London Stock Exchange.

The Group's interim financial statements for the six months to 30 June 2011, from which this financial information has been extracted, and for the comparative six months ended 30 June 2010, are prepared on a going concern basis and in accordance with IFRS including IAS34 " Interim Financial Reporting " as adopted in the European Union.

The financial information contained in this announcement does not constitute full statutory accounts. The figures are extracted from the interim financial statements for the six month period to 30 June 2011. 

These interim financial statements consolidate the accounts of RedHot Media International Limited and all of its subsidiary undertakings draw up to 30 June each year. Where shown, the comparatives for the year ended 31 December 2010 are the Company's full statutory accounts for that year The auditors' report on those accounts was unqualified.

The financial information in this announcement has been reviewed but has not been audited by the Company's auditors.

2. Accounting policies

This financial information has been prepared using accounting bases and policies consistent with those used in the preparation of the audited accounts of the Group for the year ended 31 December 2010 and those to be used for the year ending 31 December 2011.

3. Segmental reporting

For the purpose of presenting segment information, the activities of the group are divided into operating segments in accordance with the rules contained in IFRS 8 "Operating Segments". Operating segments are identified on the same basis that is used internally to manage and report on performance and takes account of the organizational structure of the group based on the various services of the reportable segments. The activities of the group are broken down into the operating segments advertising, financial services and other entities.

The advertising segment connects advertisers and media owners and places advertisements for its clients. The financial services segment market insurance and financial products and services and provide advisory service. The ultimate holding company is included in the other entities segment. Eliminations comprise the effects of eliminating business relationships between the operating segments. Internal management and reporting segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the group financial statements. There was no change in accounting policies compared to previous periods. Inter-segment receivables and payables, provisions, income, expenses and profits are eliminated in the column "elimination". Inter-segment sales take place at arm's length prices. The role of "chief operating decision maker" with respect to resource allocation and performance assessment of reportable segments is embodied in the full Board of Directors. In order to assist the decision making process, various measures of segment result and of segment assets have been set for the different operating segments. The advertising, financial services and other entities segments are managed on the basis of the profit after taxation. Capital employed is the corresponding measure of segment assets used to determine how to allocate resources. Total assets are used as the basis for assessing the allocation of resources.

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that is different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that is different from those of segments operating in other economic environments. The group's operating businesses are organised and managed separately according to the nature of products produced and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. In the directors' opinion the group has the following segments:

Business segments - two business segments, which are advertising and financial services.

The Group operate in two (2) geographical segments which are i) Malaysia; and ii) China & Hong Kong.

The segment result for 2011 H1 were as follow:

3. Segmental reporting (continued )

Geographical information

4. Earnings Per Share

The basic earnings per ordinary share has been calculated using the profit for the six months ended 30 June 2011 attributable to the company's equity shareholders of RM4,707,897 (31 Dec 2010: RM4,847,874, 30 June 2010: RM4,847,874) and the weighted average number of ordinary shares in issue of 36,577,215 (2010: 36,269,727).

For the purpose of calculating diluted earnings per share, the weight average number of ordinary shares in issue during the financial year have been adjusted for the dilutive effects of all potentially dilutive ordinary shares.

5. Intangible assets

Intangible assets are amortised over 3 to 10 years. The directors have assessed the carrying value of the intangible assets and in their opinion no provision for impairment is currently considered necessary.

6. Goodwill

Goodwill acquired in business combinations is allocated, at acquisition, to the cash generating units ("CGUs") that are expected to benefit from the business combinations.

The carrying amounts of goodwill was allocated as follows as of 30 June 2011:

The group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts of the CGU's are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the forecast period. Management estimated the discount rates of 15% using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU's.

The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

During the financial period, the Group paid a sum of RM6.0 million to the vendor of CMAD and CMIT as the final purchase consideration of the business acquired after satisfying the profit target per the terms and conditions in the sales and purchase agreement. This amount is captured as the additional goodwill to the Group. The movement in the period is as a result of a change in the estimate from 31 December 2010.

7. Trade and other receivables

8. Cash and cash equivalents

Cash and cash equivalents excludes fixed deposits of RM1,630,000 (31 Dec 2010 : RM1,630,000, 30 June 2010 : RM1,627,000) pledged as security for bank borrowings. As these are pledged accounts they are not included in the cash and cash equivalents in the cash flow statement and are shown separately on the balance sheet.

9. Bank overdrafts

The interest rate per annum during the 6-months to 30 June 2011 for bank overdrafts was 7.5% per annum (2010 H1: 7.5%).

The bank overdrafts are secured by the following:

a) Fixed deposits of RM1,630,000 together with interest accrued thereon;

b) Certificate of Guarantee from Credit Guarantee Corporation Malaysia Berhad under Enhancer Scheme for RM800,000; and

c) Personal guarantee by one of the directors.

10. Redeemable Convertible Cumulative Preference Shares

The redeemable convertible cumulative preference shares ("RCCPS")are issued by the company's subsidiaries, mainly RH Media Group Sdn. Bhd. ("RHMG"). The group intends to use the net proceeds of the investment to pursue its strategy of growing organically and through potential acquisitions, particularly in China.

The main investments received are of USD1.0 million and RM1.5 million in RHMG in receipt for 1 million Class A RCCPS and RM1.5 million Class B RCCPS respectively. The subscriber, namely, Kumpulan Modal Perdana Sdn. Bhd., a Malaysian government linked corporation based in Kuala Lumpur, has been granted a coupon rate of 8% per annum and 4% per annum respectively for the investments and has the right to convert the RCCPS into ordinary shares in RHMG at their discretion. RHMG shall warrant an exit strategy for the subscriber upon conversion of its RCCPS via a listing of RHMG on the mutually accepted stock exchange within 48 months from the dates of investments with either:

i. a return of 3 times the investment value; or

ii. a 40% discount to the listing price, whichever results in lower cost per share at point of conversion.

In the event a listing does not occur within 48 months from the dates of investments, the subscriber at its sole discretion shall have an option to either grant a 12 month extension or exercise a put-option for 2 times of the initial investment value. The put option, if exercised, would be paid in cash or an equivalent value through the issuance of equity shares by the company based on a 5 day average of the company's share price prior to the date of exercise.

In the event of a breach of agreement by RHMG, insolvency or liquidation of RHMG, commencement of any criminal prosecution against the board of directors of RHMG or Cheong Chia Chieh ceasing to be a director of the company, the subscriber shall reserve the right to redeem the RCCPS or exercise a put-option to RHMG which grants the subscriber returns of investments with an 8% coupon rate for Class A RCCPS and 4% coupon rate for Class B RCCPS and 10% annual rate of return of the investment value to be paid in cash or an equivalent value by issuance of equity of the company's shares based on a 5 day average of the company's share price prior to the date of exercise.

11. Interim Report

The interim financial statement will be, in accordance with AIM Rule 26 of the AIM Rules for Companies, be available shortly on the Group's website (www.redhot.asia).

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